'There's never been a more exciting time to be a tech entrepreneur in Japan'

At Tokyo's Ad:tech International event, speakers looked to a new wave of global investment in Japanese startups

TOKYO — While major multinationals such as Unilever are showing themselves willing to invest in startups with a view to creating mutually beneficial partnerships, the trend has yet to hit Japan on a large scale.

Speaking on the topic at Ad:tech International here, Masashi Kobayashi, co-founder and managing partner of Infinity Ventures, blamed the generation gap between entrepreneurs and typical decision-makers at large corporations.

"CEOs are not interested in startups," he said. "The generation gap is a very big issue and it’s important to eliminate that gap."

At the same time, while progress is slow, there is interest from the agency side in partnering with startups. Akihito Kawamoto, director of Hakuhodo DY Media Partners’ corporate strategy and strategic investment divisions, admitted the ad industry had been "very conservative" due to the strength of TV as the main source of revenue.

"But we’re not sure how long this business model will last, so there’s an internal need where we feel we have to innovate and make new revenue sources," he said. "There is an understanding from the management of the need to find something new, but it’s very hard to do that alone. So it’s also very worthwhile to work with VCs and have their vision and knowledge to find the seed that will grow." He added that he acted as a "mediator between VCs and top management."

The discussion turned to how startup companies should build their brands. Antti Sonninen, CEO of Slush Asia, who had previously been involved with Rovio’s Angry Birds, said it was important to concentrate on building a strong product rather than investing in marketing.

"If you have a great product, [promoting it to get users] is the logical next step. If the product isn’t great you can market it and it may or may not work, but the better your product, the better the results will be regardless of marketing."

He noted that Angry Birds did not invest much in user acquisition but also that rival mobile game developer Supercell had spent "big bucks" on TV advertising.

Opinions on the need for TV or large-scale advertising were mixed. Encouraging TV spend makes sense from the point of view of a large agency, Kawamoto said, but admitted it was prudent for startups to explore other options, too.

Category creators have little need for advertising, at least in the early stages, Sonninen said. That changes when the market matures. "If you look at taxi apps, it’s a brute-force advertising game. They’re using funding to market the hell out of their products. When the market gets crowded, that’s where advertising can add a good buck."

All panelists agreed that the prospects for entrepreneurs in Japan were exciting. "There’s never been a more exciting time to be a tech entrepreneur in Japan," Sonninen said. "There will be more entrepreneurs coming here and more Japanese entrepreneurs going to the world."

On that note, the following session looked at the approach of three tech companies at varying stages of establishment in Japan: Facebook; Airbnb; and Houzz, a US-based social platform for those interested in interior design and architecture.

While Japan is still seen as a difficult market to penetrate for foreign startups, panelists agreed companies can find a toehold by localizing to cater to specific needs and achieving legitimacy by partnering with established domestic companies.

Taro Kodama, a consultant who was an early employee of Facebook in Japan and responsible for establishing the social network’s presence in the country, said it was initially difficult for the company’s headquarters to understand why it failed to take off. (Uptake remained relatively low and flat for two years, in contrast to European markets, which had seen strong growth after Facebook simply translated its site into local languages.)

Kodama said he was given complete freedom by Facebook headquarters in order to grow users, including changing the site’s colors. Thankfully, he said, he didn't decide to take that route.

While he evangelized the benefits of social networking using real profiles (users of Japan’s Mixi typically hid their identities), forming partnerships with companies like Recruit, Dentsu and KDDI played a major role in gaining acceptance for the brand. "There were real challenges," he said. "I had to make sure Facebook was welcomed in the market and was seen as a legitimate product and service. I thought, if Facebook can partner with legitimate companies, it will also make Facebook look legit."

Aside from building legitimacy, approaching the market with the right mindset is important. Representing Houzz, which entered Japan in April — its first foray into Asia — the country’s managing director Aiko Katoh said her focus has been on users and potential users and how to serve them.

"I thought about the audience and how they would use a service like Houzz in Japan," Katoh said. "I looked into the industry and at the challenges faced in this market and tried to portray that into how they can use it as a tool, instead of thinking, 'How can I come to Japan and expand [the business,' I thought,] 'How can I adjust this tool, and how can the Japanese audience use it for their benefit?' "

She added that it is important to make people feel comfortable as part of a community was important and that face-to-face interaction helped with that. From Airbnb’s perspective, ensuring the "right people" use the site early on as both hosts and guests is crucial to forming that community. The company has been present in the market for approximately two years.

Yasu Tanabe, the home-sharing service’s country manager in Japan, said "the first evangelists impact how a service evolves."

"People who start using us early on shape how the service evolves so we are very careful to deliver the right message," he said. "We want to attract people who are very open, love culture and want to learn about other people’s culture.

"We’re doing a lot of learning from online meet-ups. At one I tried to segment people to figure out who our customer base is, and I couldn’t. … The only thing I could figure out was that the people were kind and open and trying to figure out how to support people when they come to a new environment."

Panelists agreed that maintaining culture in all areas was very important to the success of companies in the tech space. Katoh cited striking a balance between existing company culture and adaptation to the local market as the biggest and most important challenge: "Making sure that Houzz culture is really brought into Japan but also making sure that we adapt very well to this market. The audience here has different needs from audiences in other countries.

"Making sure that the service we provide globally is sustained and brought in in a good way is our biggest challenge. Sometimes things are done one way in one country and a different way in another."